Is there really a market for hybrids?

With gas prices nearly a dollar above last year’s levels, convention wisdom might dictate that hybrids would be flying out of showrooms. That’s not quite the case – instead, buyers are flocking toward more premium compact sedans like the Chevrolet Cruze, Ford Focus and Hyundai Elantra over hybrids.

Hybrids had 3.6 percent of the market back in July of 2009, but they accounted for a mere 1.6 percent of all new car sales last month. In part, the demand decline could be attributed to the fact that inventory of the industry’s best-selling hybrid, theToyota Prius, was extremely low. But other hybrids like versions of the Ford Fusionand Hyundai Sonata weren’t exactly finding many buyers.

Automakers from Detroit and Seoul are hedging their bets on premium compact sedans, which come equipped with the kind of luxuries and uplevel engineering typically found on midsize cars. More expensive to build and engineer than traditional bargain basement compacts, these new wave cars are also priced higher – a loaded Ford Focus approaches $30,000.

Still, upmarket compacts are cheaper than similarly-optioned hybrids thanks to their relative lack of complex engineering, which more than offsets their marginally higher fuel consumption.

Hybrids aren’t a dying breed, however. Volkswagen has reportedly committed to offering a hybrid – and a diesel – variant of every model in its lineup and Toyota, with an expanded Prius family on the way, is still bullish.

“There are three things you can carve in stone: death, taxes and expansion of the hybrid market,” Toyota General Manager Bob Carter told the USA Today.